This is the first in my series of Fixing Misinformation, clearing up some of the lies put out there by the right wing media. In this first issue I will tackle is taxes because I keep hearing people moan about the "Buffet Rule". For those of you who don't know what the "Buffet Rule" is, it is the idea that a executive should pay the same percentage of tax as the people in lower tax bracket. This came from the announcement by Warren Buffet (one of the richest guys around) that he paid a lower tax rate than his secretary (he said he paid somewhere about 13% or so). The president has taken this "Buffet Rule" up as a major topic issue against Mitt Romney, a solid political strategy in my opinion but I diverge.
The Republicans are crying out that increasing the taxes or taking out tax loopholes will destroy the economy by taking the money out of the hands of the people who make it. They also say raising taxes will ruin the middle class and that the rich are paying too much in taxes already! Finally they say that Ronald Reagan would never, ever raise taxes. To channel Dwight Schrute from the American version of The Office, "False".
First, the 2 strongest growth rates of GDP (GDP being the measure of growth of the general wealth of a country in good and services) in American History (17-18%) were recorded in the early 1950s and the mid to late '70s when the highest tax rate was 91% and 70% respectively. The GDP has never gone above 10% not even during the dot-com boom of the 90's. In fact during the two years in which Ronald Reagan dropped the top tax rate down to 28% in '88 and '89 the GDP growth rate was at a -4%. After it was raised to 31% the GDP growth rate went positive again. Also, when Bush Junior dropped the top tax rate from 38.6% to 25% the GDP growth rate dropped into the negative again and never reached the levels of positive growth that were during the 39% time. [Sources 1, 2]. So the assertion that increasing taxes will ruin the US economy is utterly false. This is because having low tax rates creates a system where less tax is paid by the company if it gives it in the form of equity compensation to executives. A change in this would cause stocks to be worth less over all but it would give companies to give more money to employees to seek other forms of financing.
Second, looking at the growth of family incomes from 1950 to today (adjusted for inflation). The years prior to the tax rate being dropped by Reagan, the growth rate of income between the income brackets was the same across the board. Whereas, once the rate was dropped, the income growth rate of the top 5% had their income growth rate skyrocket, while those in the lower brackets saw their growth rates flatten out. [Source 3]. So their second assertion that increasing top tax rates will damage the middle class is false as well. This is because higher tax rates cause a more distributed wealth, meaning middle and lower income brackets will get more money.
Third, it is true that the top 10% of the US earned 43% of total income in 2009 and paid 70% of the total tax revenue [Source 4]. With that information you could say that the rich pay more than their fair share but what that measure does not take into account is that fact that a greater portion of the income of the people in the lower income brackets has to go toward expenses necessary to live. Expenses like mortgages, gas, food, rent, etc.. This can be shown by the percentage of total wealth held in the US by income bracket because it shows the ability of different income brackets to save money and/or assets. In 2009 the top 10% held 75.1% of the total wealth in America [Source 5]. That means that 90% of America in 2009 had less than 25% of all wealth in America but paid about 30% of total taxes. So the assertion that the wealthy pay more than their fair share of taxes is true if you only look at income, but if you look at disposable income the opposite is true.
Finally, the statement that Ronald Reagan would never support tax increases is wrong. It is true that Reagan lowered taxes, but that could be for another reason that I will get into in another blog. The fact is that Ronald Reagan made 2 public speeches in which he gave support to the "Buffet Rule" that the Republicans are so afraid of [Source 6 and 7]. At the very least Reagan thinks that the rich should not pay a lesser tax rate than everyone else. He actually went after those making 6 figures, so in a way, Obama is being generous.
So, I hope that clears up a lot of the misinformation that the Republicans have put out about taxes especially in the wake of Paul Ryan's Budget. Understanding the fallacies of their arguments shows in what ways they need to be stopped.
Sources:
1) US GDP Growth Rates, Trading Economics: http://www.tradingeconomics.com/united-states/gdp-growth
2) Top US Tax Rate, Tax Policy Center: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213
3) Increase in Income, Consider the Facts: http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/
4) Income to Tax: The Tax Foundation: http://www.taxfoundation.org/news/show/250.html
5) Wealth Distribution: RESULTS: http://www.results.org/take_action/us_poverty_actions_and_news/november_2011_u.s._poverty_action/
6) Reagan Video 1: Think Progress: http://thinkprogress.org/economy/2012/04/09/460853/new-video-president-reagan-backs-the-buffett-rule/
7) Reagan Video 2: Think Progress: http://thinkprogress.org/progress-report/the-reagan-speech-todays-gop-doesnt-want-you-to-see/
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